Ed Al-Hussainy, senior global interest-rate analyst at Columbia Threadneedle Investments, said that Deutsche Bank’s solvency is not a critical risk yet, but “if it does start to happen, it happens pretty quickly”.

"We're not seeing the type of euphoria that you typically see at a major top in the market," Wald said on CNBC on Monday.

In contrast, Kathy Lien, a macro strategist and currency trader at BK Asset Management, told CNBC that there could be "a deeper correction in stocks", including a "Christmas collapse".

In any case, with the approach of October, volatility in the stock market could rise.

A CNBC report noted that October has been a volatile month for stocks during an election year. Since 1992, the CBOE Volatility Index has risen in each of the six presidential-year Octobers, spiking an average 21 percent.

The declines were led by bank stocks amid concerns Deutsche Bank will need to raise capital following an anticipated legal settlement with the US Justice Department.

US stocks may continue to struggle after the latest poll by FactSet showed that companies in the S&P 500 are now expected to report an earnings decline again in the third quarter, the sixth consecutive quarter of declines.

The energy sector of the S&P 500 had the largest downward earnings revision for the third quarter, with earnings now expected to decline 66 percent, the largest among all sectors.

However, US crude jumped 3.3 percent on Monday, providing investors some hope that earnings may turn around soon.

“The market is anticipating we’re going to see a resumption of earnings growth, and I think that’s the right perspective,” said David Lefkowitz, senior equity strategist at UBS Wealth Management Americas.

Peter Tuchman, a floor broker at the New York Stock Exchange for Quattro M Securities, said the decline on Friday was just a breather after “a big move the last two days”.

“Businesses are still growing revenues, expanding margins, improving productivity and raising dividends, and at the end of the day that determines stock prices,” said Doug Foreman, chief investment officer of Kayne Anderson Rudnick Investment Management.

However, Dan Suzuki, Bank of America Merrill Lynch's senior US equity investment strategist, is cautious on stocks. He told CNBC on Friday that indices that track surprises in economic data “have been rolling over pretty hard since” last July.

The yield on the US 10-year Treasury note fell to 1.630 percent from 1.668 percent on Wednesday.

US crude oil rose 2.2 percent.

“The market has come to the conclusion that everything is fine: central banks are still there, supporting equity markets and keeping yields low,” said Daniel Morris, an investment strategist at BNP Paribas Investment Partners.

However, Chantico Global founder Gina Sanchez thinks that “the market's not really pricing for” a December hike and that investors “should really think about taking some profits”.

Fidelity Investment's director of global macro Jurrien Timmer said on CNBC that, in any case, investors should not expect a significant rally until earnings growth returns.

However, a return of earnings growth is exactly what Wells Capital Management's Jim Paulsen expects. He told CNBC that he expects earnings growth to return in the second half of this year. “I think the market can handle rate increases as long as earnings return,” he added.

The US 10-year Treasury yield fell to 1.668 percent from 1.687 percent on Tuesday.

Markets rose after investors were encouraged by central bank decisions on Wednesday.

The Bank of Japan abandoned its base money target and instead adopted “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields at current levels around zero percent.

The Federal Open Market Committee said in its statement after the decision: “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”

While analysts still see a probable rate hike later this year, Bob Doll, senior portfolio manager at Nuveen Asset Management, said that “the stock market’s breathing a sigh of relief that we’ve got a few more months before we have to worry about an increase”.

“Not even sub-zero interest rates have helped weaken the yen,” he wrote, noting that the yen is up 18 percent against the dollar since the start of the year despite negative interest rates.

Einhorn quoted Tom Murphy, managing partner of Family Office Research and Management in Sydney, as saying that Kuroda's quantitative easing “is losing its firepower”. Marcel Thieliant, Japan economist with Capital Economics in Singapore, said: “They are near the limits of what they can do.”

HSBC economists led by Frederic Neumann wrote: “Short of more radical options like helicopter money and foreign bond purchases, which both seem unlikely for now due to legal and political reasons, officials have few options left to ease policy meaningfully.”

A report last year by Jacob M Schlesinger had already warned as much. “Key policy makers argued Japan’s demography determined its economic destiny, that a contracting population inevitably dictated the country’s deflationary decline,” he wrote.

One of those policy makers was former BoJ governor Masaaki Shirakawa. In May 2012, Shirakawa delivered a speech where he cited global evidence that “the population growth rate and inflation correlate positively”, in “sharp contrast with the recently waning correlation between money growth and inflation.”

China's stock market rose despite a report from the Bank for International Settlements that showed that China's credit-to-GDP gap hit 30.1 in the first quarter of 2016, up from 25.4 a year ago and way above the 10 threshold considered to be a sign of potential danger.

Among other things, the surge in credit in China has fuelled what many think is a housing bubble.

“The more immediate risk of a sudden and steep downturn in the economy comes from the threatened bursting of the property market bubble,” Pauline Loong, managing director at research firm Asia-analytica in Hong Kong, wrote in a report last week.

While the S&P 500 rose marginally last week, Richard Suttmeier thinks that US stocks are likely to fall in the next few days.

However, Charles Schwab's chief investment strategist Liz Ann Sonders thinks the bull run is still intact.

"Just digesting the fact that central banks are not omnipotent and that we may have to move to other sources of opportunity for both the market and the economy I think is something the market has to digest, but I don't think it kills the bull market," she told CNBC on Friday.

The yield on the US 10-year Treasury note was little changed but US crude fell 2 percent.

“When the Fed starts pulling liquidity back, that increases volatility which will be heightened in the next six to nine months,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company.

Former president of the Federal Reserve Bank of Minneapolis Narayana Kocherlakota thinks that the Federal Reserve should instead add stimulus by cutting interest rates a quarter percentage point at its meeting next week.

In an article for Bloomberg, Kocherlakota pointed out that inflation remains below the Fed's 2-percent target, with markets apparently losing confidence that the Fed will ever reach its target. The Fed is also falling short of its goal of "maximum" employment.

Oil also declined on Tuesday. West Texas Intermediate crude fell 3 percent after the International Energy Agency said that world stockpiles of oil will continue to accumulate through 2017, a fourth consecutive year of oversupply.

After the speech by Brainard, the Wall Street Journal concluded that the Fed lacks a strong consensus for action at the coming meeting and is likely to wait until late in the year before raising interest rates.

However, it looks like bankers have had enough of low rates.

“Let’s just raise rates,” JPMorgan Chase Chief Executive Officer Jamie Dimon said on Monday at a discussion at the Economic Club of Washington DC. “You don’t want to be behind the eight ball on this one, and I think it’s time to raise rates.”

“A slew of evidence suggests that key segments of the economy such as energy and manufacturing are still struggling and that even some of the strongest sectors of growth have taken a step back,” Bartash wrote over the weekend.

“There are already growing signs the U.S. economy may be cooling down in August into September,” Scott Anderson, chief economist of Bank of the West, was quoted as saying.

“Middling economic growth and low inflation don’t seem like a sign for the Federal Reserve to raise interest rates. And most investors aren’t expecting one when the central bank meets in mid-September,” Bartash concluded.

Saturday, 10 September 2016

Bonds also fell, with the 30-year yield rising 10 basis points to 0.60 percent in Germany and seven basis points to 2.38 percent in the US.

Markets were shaken after Boston Fed President Eric Rosengren said he supported gradual interest rate hikes. He said on Friday that if rate hikes were delayed, there is a risk that some asset markets like commercial real estate may “become too ebullient”.

This comes a day after DoubleLine Capital Chief Investment Officer Jeffrey Gundlach said “interest rates have bottomed” and told investors to be defensive.

Earlier on Friday, most Asian markets also fell after North Korea conducted another nuclear test. The KOSPI was predictably the worst hit, falling 1.3 percent.

Earlier, Asian markets were mixed. The Nikkei 225 fell 0.3 percent but the Shanghai Composite rose 0.1 percent after a report showed that Chinese imports rose in August for the first time in almost two years.

German bund yields and the euro rose on Thursday after the ECB announced its decision but economists Simon MacAdam and John Higgins at Capital Economics think the euro will weaken in due course.

“First, we don’t think it will be long before the ECB extends its asset purchase program, which is on track to expire in March 2017. Second, we expect the Fed to hike U.S. rates significantly,” they wrote in a note.

Indeed, some analysts worry that extending asset purchases risks distorting market prices. Bloomberg cites analysts at Bank of America “who argue that the ECB's Corporate Sector Purchase Programme (CSPP) could lower company borrowing costs to levels that would spark a wave of leveraged buyouts (LBOs), creating volatility in credit spreads that could shake investors' faith in the central bank and confidence in the market”.

The BofA analysts wrote that that “would be a very challenging type of event risk for the ECB to manage and could sap their enthusiasm for continuing with CSPP”.

Thursday, 8 September 2016

The S&P 500 fell less than 0.1 percent and the Nikkei 225 fell 0.4 percent but the STOXX Europe 600 rose 0.3 percent.

The European Central Bank meets on monetary policy on Thursday. Despite Germany reporting on Wednesday that its industrial production fell 1.5 percent in July, the most in almost two years, analysts had low expectations for action from the ECB.

“There’s every indication they should ease further, but no indication they will at this point,” said Megan Greene, chief economist at Manulife Asset Management.

A report from the Institute for Supply Management showing that its US nonmanufacturing index fell to 51.4 last month, its lowest reading since February 2010, boosted stocks by lowering expectations for a Federal Reserve rate hike soon.

The yield on the US 10-year Treasury note fell to 1.544 percent from 1.597 percent on Friday while the US dollar fell.

“Much like its manufacturing cousin, the non-manufacturing ISM poured cold water on expectations for a Fed rate hike later this month, and also called into question the strength of the economy heading into the fall,” said Jennifer Lee, a senior economist at BMO Capital Markets.

Monday, 5 September 2016

With the global hunt for yield getting increasingly difficult as stock market valuations rise, investors are trying to protect their returns while limiting how much risk they take on. That has led the DNB team to go underweight stocks and global bonds, buy CBOE VIX October contracts and boost cash holdings.

“It’s vulnerable,” Varran said in an interview at his office in Oslo. “We see much more that can drag the market down than we see positive surprises. We can’t see where they could come from.”

However, US employment rose by 151,000 in August, less than forecast and a 275,000 gain in July.

Bill Gross, manager of the Janus Global Unconstrained Bond Fund, said a Federal Reserve rate hike in September “is on” but Mariann Montagne, a senior investment analyst at Gradient Investments Group, said the latest economic data “indicate the Fed is less likely to raise rates” and Scott Mather, chief investment officer of US core strategies and a managing director at Pimco, said that “September is very unlikely”.

Traders lowered the probability of a Fed rate hike in September to 32 percent on Friday from 34 percent before the jobs data.